13.02.09

The European Bank for Reconstruction and Development (EBRD) expects Russia's economy to grow by one percent by the end of this year, EBRD President Thomas Mirow told reporters on Wednesday.

Mirow said that might prove "optimistic" given that the oil price is now below the level of 55 U.S. dollars per barrel, on which the forecast was based.

The EBRD is one of the largest foreign investors in Russia, but Mirow said it remained committed to the country, despite the losses it has suffered over recent months on its investments.

"The value of Russian power stations is less than it was two years ago," Mirow said. "But we didn't invest to make money, we invested because their privatization was crucial to the transition to a market economy."

Mirow is confident that Russia could run out of reserves if the global financial crisis lasts into 2011. "It depends on how long the crisis prevails. If it lasts longer than 2009 and 2010, then the reserves could be exhausted," he said.

Mirow said the oil price will be key to Russia's economic prospects. "We have seen oil and gas prices stabilize at a low level," he said. "My sense is that if this continues to stay true, probably the reserves should be sufficient for this year and next."

Among the EBRD's 30 partner countries, Ukraine and Latvia received the worst forecasts for this year due to a deep economic recession there. According to Mirow, the economies of the two countries will shrink by five percent this year.

Mirow gave a bleak assessment of the difficulties facing the country.

"Ukraine faces a combination of shrinking raw material prices, high dependency on heavy industries, an unstable political situation, a high amount of corruption and doesn't have the same degree of foreign exchange reserves as other countries," he said.

As for Estonia and Lithuania, the EBRD president is confident that the two countries will face an economic slowdown of 3.5 percent and 2.5 percent respectively.

The EBRD gave the best forecasts for economic growth in Turkmenistan (10.5 percent) and Azerbaijan (eight percent).

On the regional level, the EBRD believes that this year's economic growth will amount to 0.4 percent in Central Europe and the Baltic area, 1.5 percent in Southeast Europe, and 2.3 percent in Central Asia.

At the same time, Mirow forecasted a 0.8-percent economic decrease in Eastern Europe and the Caucasian countries (mainly due to the shaky economic situation in Ukraine, because other countries of the region have positive forecasts).

In particular, Mirow said "there is a very clear lesson to draw" from the turmoil that has swept across eastern Europe as international investors withdraw in search of safe havens.

"Even very strong and competitive economies suffer if they have to rely on a small market currency because of worries in terms of possible speculation," Mirow said.

In the EBRD's strongest and most direct statement on the issue since it was founded in 1991, Mirow said Eastern European members of the European Union should try to adopt the euro as soon as they can.

"My advice is that they should follow Slovakia and Slovenia and try to comply as quickly as possible with the Maastricht criteria and try to join the euro," he said.

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Source: Itar-Tass